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Hill-Rom (HRC) Down 5.8% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Hill-Rom (HRC). Shares have lost about 5.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Hill-Rom due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Hill-Rom Beats on Q1 Earnings

Hill-Rom Holdings reported first-quarter fiscal 2020 adjusted earnings per share of $1.13 excluding certain special items. The figure improved 10.8% from the year-ago quarter and also surpassed the Zacks Consensus Estimate by 4.6%. This year-over-year upside came on the back of solid core revenue growth, margin expansion, strategic investments to drive future growth and a lower tax rate.

On a reported basis, earnings were 59 cents per share, indicating a 4.8% decline from the year-ago reported figure.

Additionally, revenues in the fiscal first quarter came in at $685 million, up 0.2% from the year-ago period (up 1% at constant exchange rate or CER). Meanwhile, the top line was on par with the Zacks Consensus Estimate. Dull revenue growth reflects the impact of the divestiture of surgical consumables in 2019.

Geographically, in the reported quarter, U.S. revenues inched up 2.8% while the metric outside the United States declined 5.5% (down 4% at constant exchange rate or CER).

Segmental Update

In the quarter under review, Patient Support Systems revenues rose 1% year over year (up 1% at CER) to $344 million. This segment’s core revenues were up 2%, representing strong U.S. core revenue growth on robust sales of the company's care communications and mobile offerings as well as its med-surg and specialty bed systems including the Centrella Smart+Bed. However, the U.S. uptick was partially offset by lower international revenues due to the timing of large capital projects in select markets.

Revenues at the Front Line Care segment improved 9% to $255 million (up 9% at CER). According to the company, this was driven by broad-based global strength across Welch Allyn vital signs monitoring equipment, physical assessment tools, respiratory health products and the vision portfolio.

The Surgical Solutions segment’s revenues declined 21% (down 20% at CER) to $86 million, affected by the surgical revenue divestment. However, core revenues rose 9% on strong growth of surgical workflow equipment including Integrated Table Motion for the da Vinci Xi Surgical System.

Cash Position

The company exited the fiscal first quarter with cash and cash equivalents of $204.4 million compared with $214.1 million at the end of fiscal 2019. At the end of the fiscal first quarter, net cash provided by operating activities was $77 million compared with $116 million at the end of the year-ago period.

Fiscal 2020 Guidance
   
For fiscal 2020, Hill-Rom has raised the lower end of its adjusted earnings per share guided range to $5.50-5.56 (earlier it was $5.46-5.56).

The Zacks Consensus Estimate for fiscal 2020 earnings stands at $5.53, within the company’s projected band.
However, the company’s revenue expectation for the full fiscal is reiterated in the 1-2% range, both on reported and constant currency basis. Core revenues are envisioned to grow at 4-5% rate (earlier forecast was 5-6%). The Zacks Consensus Estimate for fiscal 2020 revenues is pegged at $2.94 billion.

For second-quarter fiscal 2020, revenues are expected to dip 1-2% from the prior-year figure on reported and CER basis. Core revenue growth is predicted at 4%. The Zacks Consensus Estimate for quarterly revenues is pegged at $721.9 million.

Adjusted earnings for the fiscal second quarter are estimated in the bracket of $1.16-$1.16 per share. The Zacks Consensus Estimate for the same stands at $1.24, above the company’s expected range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -6.85% due to these changes.

VGM Scores

Currently, Hill-Rom has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Hill-Rom has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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